It was a volatile week but the market finished unchanged. There are some bargains to be had in our Dividend Watch List this week which contains 11 companies that are within 11% of the 52-week low. A reminder to our readers, these are companies with long historical track records of dividend payments and increases.
Symbol |
Name |
Price |
% Yr Low |
P/E |
EPS (ttm) |
Dividend |
Yield |
Payout Ratio |
TR |
Tootsie Roll Industries |
22.63 |
2.31% |
30.58 |
0.74 |
0.32 |
1.41% |
43% |
CHRW |
C.H. Robinson Worldwide |
66.35 |
6.50% |
25.32 |
2.62 |
1.32 |
1.99% |
50% |
CLX |
Clorox Co. |
67.91 |
7.69% |
16.56 |
4.1 |
2.40 |
3.53% |
59% |
PEP |
PepsiCo Inc. |
63.15 |
7.95% |
15.67 |
4.03 |
2.06 |
3.26% |
51% |
ANAT |
American National Insurance |
71.49 |
8.80% |
11.10 |
6.44 |
3.08 |
4.31% |
48% |
ATO |
Atmos Energy Corp. |
31.09 |
9.05% |
14.07 |
2.21 |
1.38 |
4.44% |
62% |
HNZ |
HJ Heinz Co. |
53.06 |
10.27% |
17.69 |
3 |
1.92 |
3.62% |
64% |
WAG |
Walgreen Co. |
33.48 |
10.35% |
11.31 |
2.96 |
0.90 |
2.69% |
30% |
BDX |
Becton, Dickinson |
76.82 |
10.39% |
14.02 |
5.48 |
1.80 |
2.34% |
33% |
CWT |
California Water Service |
18.43 |
10.69% |
20.48 |
0.9 |
0.63 |
3.42% |
70% |
MATW |
Matthews International |
31.65 |
10.78% |
13.08 |
2.42 |
0.36 |
1.14% |
15% |
11 Companies |
|
|
|
|
|
|
|
Watch List Summary
Topping our list this week is Tootsie Roll (TR) which took a hit in the last month, down 2.6%. Our suspicion is that the recent rise in input costs (commodities such as sugar and cocoa) has hampered the growth of TR. In the short-term, companies are not able to adjust their prices faster than their input costs, thus pressuring their margins in the short term. Value Line's estimated fair value for TR is around 19x cash flow which places the 2012 stock price at $20.90. After reviewing the historical range for TR, we see the worst case scenario at 15x cash flow. Therefore, our downside target is $16.50.
There are several companies on this list that have hit what IQTrends (www.iqtrends.com) considers “undervalued”. These are Clorox (CLX), Pepsi (PEP), Walgreen (WAG), and Becton (BDX). Based on their dividend yield thesis, the estimated upside are 26%, 48%, 92%, and 17% for these respective companies.
We are convinced that Walgreen (WAG) can emerge out of the Express Script deal better than expected. There’s no doubt that Walgreen's earnings will be hurt but we believed that many of these factors are priced into the stock. As such, our model places Walgreen fair value at $51. Value Line estimated that Walgreen trades at or around 11.5x cash flow which would put the intrinsic value at $50. We believed that the downside risk for the stock is around $30 level. The technicals also support our claim as the shares have a 1-year low of $30.74. In addition, we are anticipating a crossing over of the moving averages which should act as a buying case for the bulls. In any event, the dividend yield is at its highest point in history with a very low payout ratio. We feel comfortable holding a large amount of WAG in our portfolio.

Top Five Performance Review
In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from March 11, 2011 and have check their performance one year later. The top five companies on that list can be seen in the table below.
Symbol |
Name |
2011 Price |
2012 Price |
% change |
HCBK |
Hudson City Bancorp, Inc. |
9.92 |
6.79 |
-31.55% |
SYY |
Sysco Corp. |
27.83 |
29.93 |
7.55% |
SHEN |
Shenandoah Telecom. |
16.01 |
10.35 |
-35.35% |
BMI |
Badger Meter, Inc. |
37.68 |
32.01 |
-15.05% |
WABC |
Westamerica BanCorp. |
50.25 |
47.32 |
-5.83% |
|
|
|
Average |
-16.05% |
|
|
|
|
|
DJI |
Dow Jones Industrial |
12,044.40 |
12,922.02 |
7.29% |
SPX |
S&P 500 |
1,304.28 |
1,370.87 |
5.11% |
Companies on our watch list got hammered. Especially Hudson City (HCBK) and Shenandoah (SHEN). We said the following about Hudson City:
"On the top of our list this week is Hudson City Bancorp (HCBK). The stock has been under pressure this week. Current yield of 6% is attractive but with nearly $30B of debt and only $650M of cash on hand, it many not be worth risk/reward..."
We're glad that our intuition was right about the company and didn’t take any positions in the stock. Shenandoah paid an annual dividend which we were not fond of. As such, the name never attracted us. We highlighted Sysco (SYY) and Target (TGT) which rose 7.5% and 12.7% respectively.